if you could verify/falsify my answers on these multiple choice questions and possible give me insight on possible correct answers, that would be great. thanks!
1. Which is an acceptable market method of regulating negative externalities?
A. Legal action against the source creating the externality
B. Tradable pollution credits
C. Huge penalty payable to society for the externality
D. Cash incentive given by the government for creating a positive externality
E. Closure of the production unit by government regulation
My Answer: D.
2. Externalities are called market failures because
A. resource allocation decisions are incorrectly made with the externalities present.
B. if all costs are not paid by the producer, overproduction will occur.
C. if all benefits do not flow to the buyer of the product, underproduction will occur.
D. costs and/or benefits will go to people not involved in the transaction.
E. All of the above.
My Answer: E.
These were the two questions I wasn't completely sure on so I apologize if they are both incorrect - that's why I'm here! Thanks so much.
Sure, I can help verify/falsify your answers and provide insight on the possible correct answers.
1. Which is an acceptable market method of regulating negative externalities?
Your answer: D. Cash incentive given by the government for creating a positive externality.
Explanation:
Unfortunately, your answer is incorrect. The correct answer is B. Tradable pollution credits. Tradable pollution credits are a market-based approach to regulating negative externalities. Under this system, the government sets a limit on the total amount of pollution that can be emitted, and then issues pollution permits or credits to firms. Firms that can reduce their pollution levels below the limit can sell their excess permits to other firms that are struggling to meet the limit. This creates a market for pollution permits, encouraging firms to find cost-effective ways to reduce pollution.
2. Externalities are called market failures because:
Your answer: E. All of the above.
Explanation:
Congratulations, your answer is correct. Externalities are called market failures because all of the reasons stated in option E are true. When externalities exist, resource allocation decisions are incorrectly made, as they do not consider the full social costs or benefits associated with the externality. If costs are not paid by the producer, there is a risk of overproduction, as the producer does not have to account for the negative effects on others. Similarly, if benefits do not flow to the buyer of the product, there is a risk of underproduction, as the producer does not consider the positive effects on others. Finally, costs and/or benefits may go to people not involved in the transaction, causing a market failure.
I hope this helps clarify your doubts! Let me know if there's anything else I can assist you with.